Senate bill may not assure Blues foundation payments

Gov's office promises fix

The new foundation to be created as part of the conversion of Blue Cross Blue Shield of Michigan into a nonprofit mutual insurance company is not guaranteed a set amount of annual payments that was expected to total $1.5 billion over 18 years, according to language in a bill approved last week by the Michigan Senate.

But the Snyder Administration is prepared to close the loophole over the next several weeks by signing a contract with the Blues specifying the total amount to be paid and the terms, said Sara Wurfel, Snyder's press secretary.

Under Senate Bill 1294, which could be considered by the Michigan House as early as Nov. 8, Blue Cross would "use its best efforts" to make annual social mission contributions in an aggregate amount of up to $1.5 billion over 18 years beginning in April 2014.

The "best efforts" language concerned many observers of Gov. Rick Snyder's Sept. 11 news conference -- which announced the proposed deal that would allow Blue Cross to convert into a mutual insurance company and fund a wellness foundation -- who believed that Blue Cross would be legally required to make set annual payments to the Michigan Health and Wellness Foundation and that those amounts would total at least $1.5 billion.

Cooper

"We did not expect that language (to state) that Blue Cross would use its best efforts. That doesn't sound like a promise," said Lisa Dedden Cooper, manager of advocacy for AARP Michigan. "We thought $1.5 billion was the floor" and that the annual payments would average at least $83 million over the 18-year period.

"We are concerned this amount is still not enough to help" continue Blue Cross' 32-year subsidization of Medigap premiums, Cooper said.

Attorney General Bill Schuette, who along with business groups last week praised the Senate for approving SB 1293 and 1294, said in a statement to Crain's that more work needs to be done in the House next month to clarify the funding for the foundation.

Schuette has said that his No. 1 concern with the Blue Cross bills is to protect the medical coverage of seniors living on fixed incomes.

Last year, Schuette reached a settlement with Blue Cross to freeze Medigap policies for five years through November 2016. He also negotiated an amendment to the bills that would require the foundation to spend 60 percent of its annual grant funding on Medigap subsidies for Michigan's most vulnerable seniors through 2021.

"Our charitable trust experts will be working with the Legislature to strengthen language addressing the foundation," said Joy Yearout, the attorney general's acting director of communications. Schuette was unavailable for comment.

Snyder also has said he wants the foundation to fund programs to reduce health care costs, increase quality and access of health services.

While Snyder and Blue Cross praised the Senate's action, consumer, senior and competing health insurers also raised concerns about several of the legislative provisions, including the uncertainty surrounding promises made to fund the foundation.

AARP, the Area Agencies on Aging Association of Michigan and Michigan Consumers for Healthcare want the House Insurance Committee, headed by Rep. Pete Lund, R-Shelby Township, to specify that the total contribution by Blue Cross to the foundation will be at least $1.5 billion and that there is an annual payment plan.

Jeff Rumley, Blue Cross general counsel, in a statement to Crain's, said, "Best efforts means that -- unless Blue Cross is in serious financial jeopardy -- we will make these contributions."

An analysis by Ann Arbor health care attorney Joe Aoun indicates that Blue Cross could make the $83 million annual payment to the foundation based on its investments if it earned as little as a 1.4 percent return on invested assets.

Blue Cross subscriber reserves now total about $3.4 billion. Blue Cross has invested assets of $6 billion. It earned $199 million in investment income in fiscal 2011, according to its 2011 audited financial report.

But AARP and others are also concerned about whether the $1.5 billion amount is sufficient.

Under an AARP analysis of the bill, Cooper said the maximum amount the foundation could spend each year on subsidizing Medigap premiums starting in November 2016 is $25 million. Blue Cross currently subsidizes Medigap premiums of 200,000 seniors, through a 1 percent tax on businesses, which amounts to between $182 million to $200 million a year under Public Act 350.

"Even if the language was strengthened to require $1.5 billion, we are very concerned there won't be enough money to continue the subsidies Blue Cross was required to provide to seniors and that they depend on," Cooper said.

Rick Murdock, director of the Michigan Association of Health Plans, said efforts to improve the bill now move to the House, which he believes will address concerns of competing insurers, seniors and consumer groups.

"There is significant pressure on the House to move the bills so they can meet (the governor's schedule) to approve in lame duck," Murdock said. "I believe the House will go through full scrutiny of the issues."